A note on the comparative statics approach to nth-degree risk aversion

Liqun Liu and Jianli Wang

Economics Letters, 2017, vol. 159, issue C, 116-118

Abstract: Jindapon and Neilson (2007) propose a comparative statics approach to nth-degree risk aversion. They consider a decision problem where an agent incurs either a monetary or a utility cost to reduce the nth-degree risk in his payoff. They find that, when the cost is monetary, one agent always invests more in risk reduction than another if and only if the former is nth-degree Ross more risk averse than the latter, but this is not the case when the cost takes the form of utility reductions. We show that, within an appropriately normalized risk-reducing problem with a utility cost, individuals’ relative optimal risk-reducing efforts are also governed by the nth-degree Ross more risk aversion.

Keywords: Risk aversion; nth-degree risk aversion; Comparative statics; Increase in risk (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:159:y:2017:i:c:p:116-118

DOI: 10.1016/j.econlet.2017.07.023

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